10 Ways Credit Card Companies Are Still Screwing You

In May, President Obama signed the Credit CARD Act into law, promising to safeguard consumers from abusive practices like “any time for any reason” increases on existing balances and over-limit fees for approved transactions.

That, however, doesn’t mean you can now use your plastic liberally.

Credit card companies are already finding new ways to get rich at your expense, all while racing to increase penalties and other charges before February, when the new rules go into effect.

“The credit card act means that issuers stand to lose some potential revenue, and issuers have been trying to come up with additional ways to make up for that,” says Bill Hardekopf, CEO of LowCards.com, which rates credit cards and tracks industry practices.

That’s happening in two ways, says Josh Frank of the centre for Responsible Lending, which studies abuses practices by credit card issuers. First, credit card issuers are “sneaking in last-minute price changes after the law was passed but before it takes effect.” Second, they are “experimenting with new ways to create hidden price increases even after the new law takes effect.”

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[slide
permalink=”theyre-jacking-up-rates-1″
title=”They’re jacking up rates”
content=”According to the centre for Responsible Lending, issuers are using the power they still have for a few months to implement “any time any reason” price changes to raise the interest rates for large groups of customers.

One top issuer recently raised the rate across the board on a very large group of low risk consumers who have always paid on time to an astonishing 30%. Just a year ago, this high a rate was unheard of for a regular purchase rate on a non-subprime credit card.

That’s confirmed by a new Federeal Reserve study on the CARD Act: 54% of banks have already increased or are planning to increase the credit card APR on their good (prime) customers. 74% of banks have already or will increase APRs on those with poor credit (subprime).”
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title=”They’re increasing penalty rates”
content=”Penalty rates are also going up (rate increases triggered by specific events, like being late by one day), according to CRL.

Even though the companies claimed to need more than a year to change their systems, most issuers seem to be waiting until the very last minute to stop giving penalty rates to everybody they can.

As with regular rate increases, anybody who has their APR raised to a penalty rate before the law takes effect does not benefit from the new rules on APR changes.

Their rate change is permanent and will not be reversed, even if it is implemented the day before the reform date.”
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Issuers are reducing credit limits, sometimes without any notice at all, says Hardekopf of LowCards.com.

Plus, getting a new card is more difficult than ever.

According to the Federal Reserve study, 47% of the loan officers said they have or will raise the credit score requirements for prime customers qualifying for a credit card. That number jumps to 53% for subprime customers.”
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title=”They’re increasing cash advance and balance transfer fees”
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According to CRL, issuers have raised cash advance and balance transfer fees to new highs.

According to the new Federal Reserve study, almost 40% of the banks had increased or will increase the annual fees on credit cards.

For example, some Bank of America cards for existing customers now have $29 to $99 annual fees, according to LowCards.com”
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title=”They’re manipulating rates–to their advantage”
content=”According to CRL, issuers are converting rates to variable ones, just when prime (the index rate) is extremely low and likely only to go up.

Also, issuers are adding floors to the variable rates making these them “partially variable,’ as a Pew Trust research report called it. These rates can only go up from where they start and will never go down.”
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title=”They’re redefining terms…to collect even more fees”
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According to CRL, issuers are also changing the definition to fees to make sure that more people pay them.

For example, some issuers have changed the definition of an international fee to charge people even if the transaction is in dollars.

Going from 1.5% to 1.25% cash back doesn’t seem like much, says Hardekopf, but ‘you put that over the course of a year, or over millions of consumers, and you have a lot of money.'”
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title=”They’re adding NEW fees!”
content=”Issuers are adding fees they never had before, says CRL.

For example, one issuer added an inactivity fee. Another added a fee if activity falls below a certain level (a low activity fee)”
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title=”They’re closing accounts without notice”
content=”Finally, some issurers are closing accounts, sometimes without notice, according to LowCards.com. That means you could be denied for making a purchase and only later find out your Visa card was cancelled, for example.

That comes as consumers are being pushed to spend less. According to the Federal Reserve study, just over half of the banks have cut or will cut the credit limits of their credit card customers.”
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title=”What to do about it”
content=”Credit card companies may have high fees and tricks buried in the fine print, but little of that matters if you spend within your means and pay on time. Banks can exacerbate debt, but it’s always initially caused by consumers themselves, not the proverbial Man.

Some basic tips on using credit cards from Americans for Fairness in Lending:

Don’t Get Tricked Into A Card With Bad Terms. Beware of those attractive low introductory rates that come in the mail. The fine print in credit card contracts is filled with traps to catch the unwary. An introductory 0% interest rate can quickly leap to over 20% with just one slightly late payment. If you are going to use a credit card, shop around for one with a long-term low interest rate (APR), and read on to find out what you’re in for.

Don’t Let Your Guard Down. Once you choose a card, your credit card company can still change the rules if it wants to. Read your mail — a nondescript mailing may include a change in terms relating to your interest rates, fees or due dates. The company can even change your interest rate on debt you’ve already accumulated.

Avoid Late Fees. Pay your bill several days in advance of the due date to avoid sneaky late fees. If your due date falls on a Sunday and your payment arrives on Monday — surprise — you’re late and your interest rate may jump to a much higher level!

Do Not Go Over Your Credit Limit. If you do, you’ll get hit with an overlimit fee and a penalty interest rate.

Beware of Costly Cash Advances. Cash Advances are a credit card company’s best friend. The interest rates on this borrowed money are much higher than on purchases. In addition, the credit card companies apply your monthly payments to cash advances last so that the interest owed just grows and grows.

Don’t Buy What You Can’t Afford. But if you’re having trouble making ends meet and find yourself using the “plastic safety net” to pay bills, you’re not alone. Read these tips from the Consumer Federation of America for avoiding high cost loans.

In Trouble? Get Help. If you do find yourself in serious trouble with credit card debt, do not delay. Get help immediately. Contact the Consumer Action Help Desk.

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